Hawaiian Air, Growing Quickly, Plans Beijing Service

HONOLULU ( TheStreet) -- Hawaiian Air ( HA) said it will begin Honolulu-Beijing service in April 2014, continuing its rapid global expansion.

The carrier said Wednesday it would fly a 294-seat A330 between the two capital cities three times a week, starting April 16, 2014. The service requires regulatory approval from both the Chinese and U.S. governments. Passengers could connect between the China flight and flights serving the U.S. mainland.

Hawaiian would be adding its 10th new international destination since November, although it said Wednesday it will discontinue its underperforming Honolulu-Manila service this summer. Besides adding international destinations, Hawaiian addedHonolulu-New York Kennedy service in June 2012.

"A scheduled flight between China and Hawaii has long been an aspiration of Hawaiian and the travel industry in our state, and as the barriers to visitor travel from China to the United States slowly come down, we believe there will be significant demand," said CEO Mark Dunkerley, in a prepared statement. "With our network of flights between the islands and from Hawaii to 11 cities in the U.S. mainland, Hawaiian is in a great position to offer the multi-stop itinerary that many visitors from China prefer."

U.S. Transportation Department spokesman Bill Mosley said Hawaiian filed a route application on Wednesday morning. Public comments regarding the application are due April 24, he said.

Currently, no carrier provides non-stop Honolulu-Beijing service. "China is obviously a huge market," Avondale Partners analyst Fred Lowrance wrote in a note issued Wednesday. "The China/Taiwan region (recall, Hawaiian begins Taipei service in July 2013) represents one of the fastest growing sources of visitors to Hawaii.

"Hawaiian has been learning about the Chinese traveler via its Seoul service (an easy connection point for Beijing travelers in particular), so we suspect that (it) has a good sense for how successful this new direct service could be," Lowrance said. "The rapidly growing and increasingly mobile Chinese middle class, along with efforts by the U.S. government to simplify the visa process, also give us confidence in the long-term potential of this route."

Regarding the Manila flight, "high fuel prices and low fares have plagued this particular route," said Peter Ingram, Hawaiian's chief commercial officer, in a prepared statement. "While we have made several efforts to improve the economic performance of our Manila service, including adjusting our flight schedule to optimize connections and upgrading to newer A330 aircraft, we've concluded that the route will not be a commercial success."

Lowrance wrote: "This decision on Manila tells us that management is willing to make the tough decisions on international expansion and to reallocate proven underperforming capacity to what could be better opportunities. While we do question what this means about Hawaiian's real number of viable new and existing international/long-haul destinations, we continue to believe that opportunities in the Asia Pacific and North America are numerous enough to profitably absorb the net new aircraft that Hawaiian has coming on-line over the next few years."

The Manila route, the longest in the Hawaiian network, was generating passenger revenue per available seat mile that was 40% below that of Hawaiian's second longest route to Sydney, Lowrance said, citing second-quarter 2012 data. He added: "Sydney appears to be Hawaiian's best-performing long-haul route by a good margin, which clearly supports Hawaiian's decision to up-gauge this route last year and also likely gave Hawaiian additional confidence in launching service to Brisbane in Nov 2012."

Lowrance has an outperform rating on the stock and an $8 price target. In mid-morning trading on Wednesday, shares were up 7 cents to $5.43.